Introspect Reasons For Low Market Valuation: DIPAM Secy To State-owned Cos

DIPAM Secretary Tuhin Kanta Pandey said on Friday that the central public sector enterprises (CPSEs) should do introspection about low stock market valuation and constantly engage with investors in a bid to yield better share prices.

“A point of concern has been that between March and November while Sensex and Nifty have risen about 50 per cent, we have got a rise of only 19 per cent in the BSE-CPSE index. It’s falling behind Sensex. Of course, it consists of sectors doing well post-pandemic but in general, we have a problem of PSU stock valuation in the market,” Pandey said at a virtual summit organised by the Confederation of Indian Industry.

He told the firms to do an ‘atmachintan’ (or self-thinking) as to why the problem is arising and whether it is due to “inherent problems in managing companies” or is it because of government policy issues. “We must introspect and ensure investors who invest in the PSE space are equally rewarded and not short-changed,” the secretary said.

Pandey said that the DIPAM wants CPSEs to include asset monetization and market capitalization improvement as two indicators in the memorandums of understanding that is signed with the administrative ministry. This is because non-core assets, which are lying idle, should be monetized to improve efficiency.

Pandey told the state-owned firms to look at improving the asset-turnover ratio and ensure high return on capital employed and on equity. “Because at the end of the day, the CPSEs are into business and therefore, many shareholders putting in money have rightful expectations on return on capital employed and return on equity,” he said.

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The secretary stressed that the state-owned firms should look at the ‘consistent dividend policy’ spelled out by the government recently to spread the dividend payout to its shareholders throughout the year, instead of annual dividend, which will also give an opportunity to firms to constantly engage with investors.

“If investors are looking at growth project in terms of capital formation, you have to convince them that the dividend may not be as high as they are looking for. This is something that will come out of constant engagement of the top management with investors. Wherever this is done transparently and regularly, we have seen investors rewarding with better share prices,” Pandey said.

Pandey pointed out that low capital expenditure by state-owned firms is an issue “we are grappling with to revive the economy.” “Public sector appetite has been relatively lukewarm and public sector investments have to take lead to revive the economy. Around 40 per cent share in public sector investments is contributed by the CPSEs,” he said. He said that typically the ratio of capital expenditure deployment is 3:7 between the first and the second half of the fiscal year.

Eight months into the fiscal year, the capital expenditure of CPSEs stood at about 40 per cent of the targeted Rs 61,483 crore for 2020-21.

The DIPAM secretary highlighted how on its part the government has taken steps to ensure market valuation of state-owned firms goes up. For instance, it will no longer go for exchange-trade funds or offer for sale as the market feedback is it will “create price overhangs”.

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